Business Research

On
Factors Determine Quality of a product & Price and Perceived Quality Relationship

Submitted To: Mam Zainab Rehman Submitted By:

Muhammad Faisal MBC-09-11 Shahid Rasool MBC-09-45 Makhdoom Arslan Abbas MBC-09-53

Institute Of Management Sciences,(City Campus) Bahauddin Zikariya University, Multan

Table of Content

Acknowledgement: Error: Reference source not found

Table of Content..................................................................................................................2 Acknowledgement:..............................................................................................................2 Abstract:...............................................................................................................................3 Management Dilemma:........................................................................................................4 Literature Review:...............................................................................................................4 Research Design:.................................................................................................................6 Limitations:..........................................................................................................................7 Analysis of Questionnaire:...................................................................................................8 References:...........................................................................................................................9 A survey to determine the factors that affect the price and quality of the product............10

Acknowledgement:
Boundless praise and gratitude to Allah Almighty, the most beneficent, the most merciful, the source of all knowledge, wisdom and guidance who taught man to read and write with pen and blessed him with knowledge to not only embark upon this noble and sacred work.

We are nothing but what our great teachers made us, who enriched us with the light of knowledge and in their guidance, who soar high to eternal heights of character and wisdom. The completion of this research is only due to the assistance and encouraging attitude of our respected instructor Mam Zainab Rehman who enabled us to complete this Research.

Abstract:
The objective of this research is to generally find out the determinants of quality and the relationship between price and perceived quality of Fast Moving Consumer Goods (FMCGs). In which, four product categories were taken those were soaps, shampoo, toothpastes and detergents. Eleven Determinants were determined from the secondary data and consumer survey was conducted in Multan. Sample size was

allocated according to the population of the City. Results were analyzed by using statistical tool Frequency Distribution. Based on the evidences, we have found that ingredient is the most important determinant of quality and the advertising is the least important. It is found that almost 66% of the respondents negated the positive relationship between price and perceived quality.

Management Dilemma:
There has always been a relationship among price and quality. Generally it is assumed that higher the price, so is the quality. To some extent this assumption is correct but many researchers differ from it. Apart from it, pricing a product which communicates quality is a difficult task. While pricing a product, problem that most of the marketers face is that how customers relate price with perceived quality and to what extent price justify quality remains unanswered for researchers as well as for consumers. Here we would be taking FMCGs to know what consumer means by quality and what price tells them about quality. This would help us out in building relationship that consumers think lies between price and quality. Our research would facilitate FMCG marketers to price in such a manner that gives clear image of quality.

Management Question:
How we can price FMCGs to communicate quality?

Research Questions:
1) What are the determinants of quality? 2) What is the relationship between price and perceived quality?

Literature Review:
To understand consumer perception of the price-quality relationship we must fully understand the environment in which these perceptions are formed. Price reflects levels of quality even with limited competition and competition doesnt destroy the relationship between price and quality. Companies with high quality product, spend more on advertising than companies offering lower quality products. (M.Shyan)

Some determinants of perceived quality of any product are: 1. 2. 3. 4. 5. 6. Brand name Price Warranties country of manufacture reputation of store appearance of the product(packing etc)

Consumers usually prefer high priced products when they have to make quick decisions and secondly they lack the expertise which is required to assess the quality of the product. After brand name, price is used more frequently as the indicator of quality. (Ted Haggblom) The correlation between price perceived quality relationship is much higher for nondurable products than for durable products (Lichtemstan, H.Block & C.Black ; 1988) When the price of a good is deemed acceptable, its perceived value is positive (Mornoe, 1984). Perceived Value is the ratio of perceived quality (Get component of exchange) to price (Give component of exchange). (Mornoe and Petroshious, 1981) Price, Except for unique but as yet unspecified circumstances, doesnt influence perception of product quality. (David M. Gardner, 1971) Quality of the product is perceived highly by the first impression, brand name, price of the product and physical and reputation characteristics. But Price and Brand information are so important that they may block the emergence of product related queries in the mind of consumers. We can say that price and brand information create the first impression in the mind of the customers. Consumer pays less attention to other attributes/quality, but more towards the brand name and price (Oxoboy, 2004) Firms may seek to exploit attention blocking in new market where consumer initially knows little of product attribute/quality relations. Some manufacturers and retailers use price as a signal of quality. Empirical research suggests correlation between price qualities as by consumer is moderately positive (Lars & Perner). Price above a critical price is used to signal quality while discounted prices are not; Advertisement is also a signal of products perceived quality (Yun-Jae Hwang, Brian Roe, Mario F.Teisl; 2006). There are basically four quality signals: 1) Price 2) Advertising frequency signals quality 3) advertising content provides direct information about quality 4) use base experience provide direct information about quality. The role of

advertising frequency in signaling quality is also significant but is less quantitatively important than price. Caves & Greene (1996) reported that Product quality correlation is higher in product category that includes more brands and is less for convenience goods. The internal reference price is used as a parameter by customers to perceive he price offered by the manufacturers, internal reference price refers to a point on the internal judgment scale that is used as the standard to judge offer prices. By definition, all offer prices above this reference point are perceived as high, and all offer prices below this standard are perceived as low. So here manufacturers task is to identify the internal reference price of the consumers and set the price accordingly. (Manoj Thomas & Geeta Menon) Empirical researches indicated a weak price-quality relationship. In the first study which appeared in literature by Chase & Schlink in 1924, it was mentioned that virtually, there is no correspondence between price and quality of products. They concluded: The highest doesnt necessarily secure the best quality. Oxen Feldt (1950) also reported negative relationship between price and quality. In another such investigation, Riesz (1979) observed a weak price-quality relationship for 679 brands of food products investigated by consumer reports. Few deny using price as the indicator of quality, where generally there is a positive relationship between price and perceived quality but these empirical attempts do not show consistent results (1989). The effect of brand name is larger in determining quality than that of store name. (Akshay Rao)

While predicting about product quality from its price, consumer follow two models. 1) High price means quality. Consumer relates high price with higher quality because he thinks that high price is due to the expensive raw material used in process or due to more rigorous development process. 2) High price means lower quality. Consumer thinks that seller is charging high price due to the corporate greed. He just wants to earn more and more money, thats why he is charging high.

Research Design: Research Method:

The methodology used in conducting this research would be Surveys and Secondary data analysis. Questionnaires would be our basic tool for conducting survey. Secondary data would be providing us comparison as well as guideline in conducting research.

Type of Research:
The aim of this research is to find out how customers relate price with quality and what factors are involved in determining the quality. Our area of research is regarding FMCG. This would be an exploratory research. In this study price is our independent variable and perceived quality is the dependent variable. No artificial situation would be created for this study. Major source of data would be primary in nature.

Data Sources:
Both primary and the secondary data would be used but in major primary data would be our soul source.

Primary Data:
Observations, interviews and surveys would work as a primary source.

Secondary Data:
Secondary data would provide reliability and validity of data. External sources will be used. Previous publications would be an effective source.

Sampling:
Target Population:
All customer segments would be our target population as each segment would be considering different factors in determining the quality.

Sampling Methodology:
Sample will be selected randomly from City of Multan .Mostly sample will be selected from BZU University and Gardeezi market.

Sample Size:
Our sample size would be 50 respondents. Sample frame would be allocated to city of our study with respect to their population size. People of all income groups would fall under this sample. Expected no response is also considered while choosing the sample size.

Scaling:
Interval scale would be used in this study. This is due to the reason that this study is to find out the magnitude of relationship between price and perceived quality.

Limitations:
1) Total sample size of this study was 100 out of which we were able to conduct only 80 samples, due to time and financial constraints. 2) We were not able to complete the sample size from different markets of Multan. 3) Most of our respondents were male, as no response rate was higher in females. 4) We were not able to use regression analysis while analyzing the results due to some time constraints.

5) Mostly uneducated people gave biased responses. 6) Sample was taken only from University and urban areas. 7) Owing to our cultural constraints; except few, housewives were unreachable.

Analysis of Questionnaire:
The questionnaire was formed up to know the determinants of quality and the relationship that exists between price and perceived quality. Fast Moving Consumer Goods (FMCG) sector was taken as the area of research. All population was considered as our target respondents as all get use of FMCG products. A sample size of 100 respondents was taken and the number of sample size from each city was allocated according to their population size. From the total respondents 75 qualified as our respondents. Surveys were done in each city to get the desired outcomes; in majority the personal interviewing method was adapted under which intercept method was used, the self administered interviews were also conducted but up to some extent. The questionnaire was divided into two sections, the first one was used to identify the determinants of the quality and the second section to know the relationship that exists between price and the perceived quality Classifications questions were also used in the questionnaire. These included Age, gender, Income and City. The age was classified under low, medium and high. Age ranging below 20 was considered as low, medium ranged from 20 to 30 and the high ranged from 30 to onwards. The income was also classified as low, medium and high. Income below 15000 was considered as low, medium was ranged between 15000 to 25000 and the high above 25000. The questionnaire in total consisted of seven questions out of which first section was having three questions and the second section having four questions. Different rating scales were used to form up the questionnaire. These were simple category scale (Dichotomous scale), multiple choice-double responses, lickert scale and the graphic scale. No open ended questions were included..

The analysis of each of the question is as follows:

Section I:
Question No 1:
The objective of this question was to identify the determinants of quality, and to get the opinion that what customers think about quality and which variables they consider while defining the term quality. Total eleven variables were mentioned in the question

that was taken from the previous researches conducted and books were also consulted to identify them. The respondents were to choose all the variables that qualify in defining quality. The eleven variables were as follows: Ingredients, Variety, Convenience in use, Price, Availability, Freedom from defects, Brand Image, Uniqueness, Advertising, Packaging and Applications

References:
Donald R. Lichtensten & Scot Burton; The relationship between perceived and objective price quality; Journal of Marketing Research, Vol XXVI, November 1989, 429-43 David M. Gardner; Is there a generalized price-quality relationship?; vol VIII (May 1971), P 241-3 Yum-Jae Hwng, Brian Roe & Mario F. Teisl; Does Price Signal Quality? International food and Agribusiness Management Review; vol 9, Issue 1, 2006, P 93-114 Michael Finke, Mona Ismail, Peng Chen, Chandrika, Hui Wang and Sherman Hamne; How much should consumers be willing to pay for information about consumer products? Family of Economics & Resources management Biennial, 1995. David J. Faulds and Subhash C. Lonial; Price-Quality Relationship of nondurable ;consumer products, Journal of Economic and Social Research; vol 3, Issue 1, 2001, P 59-76 Tulin Erdem, Michael P.Keane, Baohong Sun; When Price and Advertising Signal Product Quality, Jan 2005 Volckner, Franziska, Hoffman, Julien; The Price-Perceived Quality Relationship, Marketing Letters; Jul 2007, Vol 18, Issue 3, P 181-196 Visabibility.com; The Relationship between Quality and Price; 2007 Suzanne Wu; Why we are such terrible udges of the relationship between price and quality. http://www.jstor.org/view/00935301/di007493/00p0502n/0? currentResult=00935301%2bdi007493%2b00p0502n %2b0%2cFF01&searchUrl=http%3A%2F%2Fwww.jstor.org%2Fsearch %2FBasicResults%3Fhp%3D25%26si%3D1%26gw%3Djtx%26jtxsi %3D1%26jcpsi%3D1%26artsi%3D1%26Query%3Dprice%2Bquality%26wc %3Don http://www.jstor.org/view/00935301/ap010002/01a00080/0? currentResult=00935301%2bap010002%2b01a00080%2b0%2c3F&searchUrl= http%3A%2F%2Fwww.jstor.org%2Fsearch%2FBasicResults%3Fhp %3D25%26si%3D1%26gw%3Djtx%26jtxsi%3D1%26jcpsi%3D1%26artsi %3D1%26Query%3Dprice%2Bquality%26wc%3Don http://www.jstor.org/search/BasicSearch? si=1&hp=25&Search=Search&gw=jtx&Query=price+quality&wc=on

http://www.emeraldinsight.com/Insight/advancedSearch.do? hdAction=button_search&dummy=&searchOptions1=&searchTerm1=price+an d+quality+relationship&searchFields1=All+fields http://www.knowthis.com/management/pricing.htm

A survey to determine the factors that affect the price and quality of the product.

We (Business Students of Institute of Management Sciences city campus, Baha-ud-din Zakariya University, Multan) are interested to know your point of view about the determinants of quality and what you perceive about the quality of a

product while looking at its price. Your Opinion is extremely important and valuable for us. We will be highly obliged if we could have a couple of minutes from your precious time. We assure you that your answer will be completely private and confidential and it will be used only for the academic purpose.

PREPARED BY: Muhammad Faisal Shahid Rasool Makhdoom Arslan Abbas MBC-09-11 MBC-09-45 MBC-09-53

Institute Of Management Sciences (City Campus) Baha-ud-din Zakariya University Multan

Respondent information: -

Name: Age: Place:

___________________ ____________________ ___________________

Contact No: E-mail: Designation: Name of the Organization:

___________________ ___________________ ___________________ ___________________

Income: o o o o o Less than 10,000 per month 10,000-15,000 per month 15,000-20,000 per month 20,000-25,000 per month More than 25,000 per month

SECTION-I Determinants of Quality

Q-1: Tick the variables that in your opinion define quality: (Choose all that apply)

Ingredients Variety Convenience in use Price Availability Freedom from defects Brand Image Uniqueness Advertising Packaging Applications

_____ _____ _____ _____ _____ _____ _____ _____ _____ _____ _____

Q-2:

How would you place the following attributes on the Importance Scale? Attributes Basic Indifferen t Tempting Buzz

Ingredients Variety Convenience in use Price Availability Freedom from defects Brand Image Uniqueness Advertising Packaging Applications

Q-3: Which dimensions of quality influence you to purchase the following products? (Encircle all that apply)

Soaps Ingredients Variety Convenience in use Price Availability Freedom from defects Brand Image Uniqueness Advertising Packaging Applications

Shampoos Ingredients Variety Convenience in use Price Availability Freedom from defects Brand Image Uniqueness Advertising Packaging Applications

Toothpastes Ingredients Variety Convenience in use Price Availability Freedom from defects Brand Image Uniqueness Advertising Packaging Applications

Detergents Ingredients Variety Convenience in use Price Availability Freedom from defects Brand Image Uniqueness Advertising Packaging Applications

SECTION-II Relationship between Price and Quality

Q-4: Soaps: _____________________________________________________________ Shampoos: _____________________________________________________________ Toothpastes: _____________________________________________________________ Detergents: _____________________________________________________________ Q-5: How would you rank the quality of each product, you purchase the most? Very High Soaps Shampoos Toothpastes Detergents Q-6: Do you think the Price you pay justifies the quality? High Indifferent Low Very Low Which brands you purchase for the following products?

Soaps Shampoos Toothpastes Detergents Q-7: Do you think high price means high quality? Yes No We appreciate your valuable participation and are grateful for your precious time you spared for us. And look forward that you will cooperate in the same manner in future. Thank you!